EGDF publishes its response on VAT in the Digital Age consultation
For years European game developer studios have relied on platforms acting as deemed suppliers for VAT reporting. This system has worked well and does not need to change. However, now that alternative third party payment options are becoming more common in traditional digital distribution platforms and more and more game developers are experimenting with so-called web3 games, European SMEs are again starting to increasingly take care of VAT reporting by themselves.
Digital services and content like games are quickly becoming an essential part of the European economy. The success of European digital services and content has primarily been based on European SMEs having immediate access to global markets regardless of their location. Unfortunately, governments all over the World are continuously fragmenting global markets by introducing novel VAT / Sales tax practices.
EGDF calls the European Commission to:
- Introduce precise requirements for platforms to prove that they have paid the VAT for B2C transactions on behalf of companies operating through them. The Commission should introduce mandatory legal requirements for platforms to provide a clear invoice/receipt for European SMEs operating through the platforms. This invoice/receipt should explicitly state which one of their global subsidiaries is paying the money to a game developer/publisher. Furthermore, it should list all taxes (e.g. VAT and withholding taxes) and other payments explaining the difference between the in-game sales recorded and the sum paid to the game developer.
- Follow data protection on default and design and data minimisation principles while designing new reporting/e-invoicing rules: The data processing related to VAT reporting should generally happen as far as possible at the company level. Only when absolutely needed companies should transfer data to tax authorities, and when they transfer the data, it should be as far as possible anonymised and aggregated data.
- Secure sufficient time to implement new rules: Is is crucial to have sufficient transaction time for any changes in reporting/e-invoicing requirements so that these service providers and tax authorities have time to update their systems.
- To take global leadership in VAT/Sales tax reporting: The commission should focus on opening it one-stop-shop for VAT reporting (OSS) to third countries if they commit to European standards for the VAT. Furthermore, to encourage tax compliance for traders from third countries and the use of OSS outside the EU, the commission should consider introducing a reward system for tax automation service providers that are acquiring clients to pay VAT to the EU through their systems. The reward should be based on taxes paid through an individual automated tax compliance service. In the short run, it would secure that these service providers will do all they can to ensure that as many companies based in third countries as possible will take care of their VAT obligations in the EU. And the more familiar local traders from a third country are with OSS, the easier it is to convince the third country to start using OSS.
The full position paper can be accessed here: https://www.egdf.eu/documentation/5-fair-digital-markets/4-digital-ready-taxation-framework/how-to-fix-the-vat/
or downloaded from here: https://www.egdf.eu/wp-content/uploads/2022/05/202205-EGDF-response-on-VAT-in-the-Digital-Age-final.pdf
For more information EGDF approach on taxation, please visit: https://www.egdf.eu/documentation/5-fair-digital-markets/4-digital-ready-taxation-framework/